Question

You were in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 20X2, when you were consulted by the corporation’s president. The president believes there is no point in your examining the 20X3 accounts payable records and testing data in support of 20X3 entries. He stated: (1) bills pertaining to 20X2 that were received too late to be included in the December accounts payable were recorded as of the year-end by the corporation by journal entry, (2) the internal auditor made tests after the year-end, and (3) he would furnish you with a letter certifying that there were no unrecorded liabilities.

Required:a. Should your procedures for unrecorded liabilities be affected by the fact that the auditee made a journal entry to record 20X2 bills that were received later? Explain.b. Should your test for unrecorded liabilities be affected by the fact that a letter is obtained in which a responsible management official certifies that to the best of his knowledge all liabilities have been recorded? Explain.c. Should your test for unrecorded liabilities be eliminated or reduced because of the internal audit work? Explain.d. What sources, in addition to the 20X3 accounts payable records, should you consider to locate possible unrecorded liabilities?